Osborne Eyes Woes As Public Finances Improve
November 21st, 2014
A recent article from Sky News raised some interesting points regarding the recent upturn in the UK’s fortunes:
“The Chancellor has spoken of renewed fears for the world economy as the public finances continue to show higher borrowing in the current year.
George Osborne fears missing his borrowing target for 2014/15 ahead of next year’s General Election and stagnation in the euro area, the country’s biggest trading partner, is a core concern amid his drive to boost tax receipts.
Public sector net borrowing was £7.7bn in October, a fall of £200m compared with the same month last year.
It meant borrowing in the financial year to date was £3.7bn higher compared with the same period in 2013, standing at £64.1bn, an improvement on the £3.9bn year-to-date overshoot measured the previous month.
The public purse has failed to benefit this year from the UK’s economic recovery, mainly because of slow wage growth which has hit income tax receipts.
The Office for National Statistics said receipts from income tax and national insurance contributions rose 1.5% in October.
But the sums collected represent only a 0.6% increase in the financial year to date, despite GDP growth running much higher.
Mr Osborne made his comments on the world recovery at a meeting with his Italian counterpart as pressure grows on the European Central Bank (ECB) to take further action to spur growth.
ECB president Mario Draghi told a banking conference in Frankfurt it would broaden its efforts if its current policies failed to have the desired effect.
It has already lowered its benchmark interest rate to near zero and started purchasing bonds made up of bank loans to companies in an effort to boost lending and economic activity.
Draghi said the bank could alter “the size, pace and composition of our purchases”.
Some economists think the bank could widen the bond purchases to include corporate or government bonds in an effort to pump newly created money into the financial system – so-called quantitative easing.
The ECB has held off on such stimulus to date because bond purchases are legally and politically more complicated in a multi-country currency union and is fiercely resisted by Germany.”
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